January 13, 2014
Interviewed by: David Snow
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How Entrepreneurs and Capital Drive Impact

Three investment experts explain the important role of entrepreneurs—often backed by private capital—in the development of society in emerging markets.

Three investment experts explain the important role of entrepreneurs—often backed by private capital—in the development of society in emerging markets.

How Entrepreneurs and Capital Drive Impact

Impact Capital in the Emerging Markets

David Snow, Privcap: We are joined today by Alasdair Maclay of Actis, Okey Enelamah of African Capital Alliance, and Jon Shepard of EY. Gentlemen, welcome to Privcap today thanks for being here.

I’d like to talk about something very important within the emerging markets, and that is the role of the entrepreneur and the private businesses being built by the entrepreneur in creating an impact on the societies and on the environments of the surrounding communities. All of you are involved in the creation of private businesses in emerging markets, so maybe starting with a question for Alisdair, what is the importance of a thriving business and a sustainable business on its ability to deliver an impact beyond simply the financial returns to the investors?

Alasdair Maclay, Actis: Sure, I think every successful business creates impact, and there are so many different ways to measure that impact. I’m sure we can discuss everyone’s favorite ways, but whether that’s employment, whether that’s the knock on multiplier effect in the local economy, whether that’s stimulating the local supply chains, say it’s a car manufacturing business. Then you’ve got all the component companies, which want to cluster around that company, so every business that’s thriving in the private sector particularly is having a significant impact.

We try to measure the impact, whether that’s in terms of jobs created or benefit to the local economy. It’s not always so easy to, to measure that factually and accurately, but we’re so confident in delivery of that impact that that’s a nice measurement to be able to share with investors. But if I think through why we care about that there is an element of risk mitigation in wanting the sort of consequences of our investment and our companies to be beneficial to the local environment. It helps manage any potential risks, whether that’s workforce risk. So by training your workforce and being able to train up their families and other people who are creating jobs that of course mitigates employment risk, and it mitigates skill risk within your business. So these, these impacts are very significant, and our investors are increasingly interested in the impact of their investing. It’s their money that we manage and we very much do as bidden by them to help demonstrate the impact, so we try o measure those employment benefits. And we’ve worked out various metrics and measurements, which we allocate against each of our investments to try to show to ourselves and to our investors just how much impact over and above pure financial return we’re having.

And I’ll just give one example where we sold a business where we had spent a lot of time and effort working with our value creation team, with our environmental social governance team on delivering a number of changes to the company, all of which had significant impact. And when we sold that business the chief executive of the company explained, I paid a lot more for this company because every single element of its, of the impact it was having on the people around it and all the stakeholders was so strong and under control that I didn’t feel that I had to do anything more to your business once I’d acquired it. And that really sort of paid for itself, it might be risk mitigation, but it was also pure value creation.

John Shepard, EY: I think that’s absolutely right and there is a, there is a frequently quoted statistic that every dollar invested in an asset made in the emerging markets creates you know, ten or twelve dollars of broader socio-economic return. And I think all the points Alistair has made I would, I would echo, and there is probably another, another couple to add. One is what economists call demonstration effects, which you see from time to time the idea that well if that guy can do that then I can do it. And you know, small businesses are started as a result of that. Something that we see particularly in agriculture, which you know, is a hugely important sector in Africa, is SMEs creating value by acting as aggregators for micro-enterprises. So small businesses that aggregate the imports of in some cases thousands of, of micro farmers, and enable those products to get into the supply chains and distribution channels of national and multi-national companies. And then I think another important point is that SMEs can sometimes extend informal trade credit to, to, to suppliers helping them through working capital problems on a very informal basis. But that in itself, I think, is an important multiplier effect as well.

Snow: Okey, your firm African Capital Alliance is a returns driven for profit entity. Can you talk about your ability to observe the impact that some of these successful businesses that you’ve built have had on the surrounding community and indeed on to the society and environment?

Okechukwu Enelamah, African Capital Alliance: This is a classic example where it’s not profit or development, it’s profit and development and I agree with Alistair that the two can actually go hand in hand quite well. If you look at African Capital Alliance we actually had a very interesting start, if you look at how we started, we started with a vision to create a modern economy in Nigeria and the sort of surrounding sub-Saharan African sort of region and, and countries. And if you look at who our founders were these were people who had had very successful careers in business. From Dick Cramer who started our fund in Nigeria to Pascal Dozie who started a Diamond Bank, to Chief Ernest Shonekan, who was the CEO of the old Unilever companies in Nigeria called UAC and went into government as a head of state, and a gentleman called Muhammad who was also a very successful banker, most of them at that stage of their lives were looking to make an impact on the economy that was much broader than the individual businesses they had built.

And found that by partnering with us, myself and Tom Barry one of our other founding partners, we could start a fund that could have a vision of creating modern economies through private sector development and capital. And do that, and how we’ve gone about it is by literally working in those key sectors of the economy where the private sector can come in, provide leadership as well as management to help to unlock the value in those sectors.

We are not just business people, but we are stakeholders in our countries and in our nations where we live. So you find us very active in the Nigerian Economy Summit Group and very active in the Aspen Fellowship Programs, you know, literally wanting to change society. I think it was Michael Porter, the great strategy professor, that said one of the most important constant stakeholders in any economy is not so much the government, cause they come and go in a democracy, but the business sector because we are always there. And I think that is so true in markets like Nigeria. We arguably should have more influence than even the misters and the president cause you know, he’s there for four years but we’re going to work with him and we’re going to  work with the next, and the next, and the next. Being able to channel those energies and our resources in a way that whether it’s through advocacy, whether it’s through sort of influencing the key players to work in a particular way that is good for the greater good, I think there are multiple ways in which business people in the economy and as investors we contribute to the greater good of society.

 

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